CARRIAGE OF GOODS BY SEA: MISDELIVERY OF CARGO: MEANING OF “DELIVERY ORDER": ELECTRONIC RELEASE SYSTEMS IN OPERATION AT PORT OF DISCHARGE: WHETHER A RELEASE NOTE CONTAINING PIN CODES CONSTITUTED A DELIVERY ORDER: WHETHER CONSIGNEE ESTOPPED BY PREVIOUS USE OF ERS SYSTEM

Summary

Glencore shipped cargo with MSC, which MSC duly discharged at the destination port. The port operated an electronic release system requiring the person taking delivery to enter pin codes. Part of the cargo was stolen before Glencore collected it, probably because the pin codes were hacked. MSC was found liable. Its supplying the pin codes to Glencore and instructing the port to release the cargo against the correct pin codes did not fulfil its obligations as carrier to deliver to Glencore.

Glencore shipped 3 containers of cobalt briquette drums with MSC from Fremantle to Antwerp (“Cargo”). This was Glencore’s 70th such shipment. The terms of the bills of lading indicated "...one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier (together with outstanding freight) in exchange for the Goods or a Delivery Order".

The Cargo was discharged on 26 June 2012 but when Glencore’s local agent (“Steinweg”) attempted collection on 27 June, it found 2 containers had already been collected and were missing. It is thought an unknown person had learnt the codes and stolen the containers.

The port of Antwerp operated an electronic release system (“ERS”). Cargoes were discharged into the port. In exchange for original bills of lading, carriers generated pin codes and supplied the pin codes to cargo receivers. Cargo receivers presented the pin codes to the port for release of the goods.

ERS was not mandatory, but had been used by MSC and Steinweg for Glencore’s 69 previous shipments, without incident. Glencore was unaware that ERS was used. Each time, MSC sent Steinweg an arrival notice and ETA. After payment of freight and presentation of bills of lading, MSC sent Steinweg a electronic “Release Note” with the pin codes. The “Release Note” incorporated MSC’s bill of lading terms, the Antwerp port’s ERS terms, and a provision “Discharge of the cargo will constitute due delivery of the cargo…”

At first instance, Glencore successfully sued MSC for breach of contract and bailment and in conversion. MSC appealed to the Court of Appeal, but its appeal was dismissed.

Judgment

MSC raised 5 grounds of appeal, each of which Sir Christopher Clarke’s leading judgment rejected for the following reasons.

1. MSC’s provision of the pin codes was symbolic delivery of the goods, akin to the key of the warehouse where goods are stored. So MSC had given delivery.

The Court’s findings:

- The terms of the bill of lading contemplated actual delivery against either a bill of lading or a delivery order for which a bill of lading had been exchanged. They did not contemplate delivery by the supply of pin codes. In other words, the terms provided for the physical delivery of the cargo and not merely for the supply of a means of access to the Cargo.

- The “key to the warehouse” example assumes that when the key is used the goods will be present. Here, when the code was used, only 1 of the 3 containers was present.

- Discharge is not delivery. Delivery involves the carrier relinquishing possession of the Cargo to the person so contractually entitled. However, under the ERS, MSC was technically able to recall the pin codes generated, denying Glencore possession of the Cargo, and so did not divest itself of "all powers to control any physical dealing with the goods". MSC did not, therefore, make delivery.

2. The Release Note and pin codes together comprised the “delivery order” referred to in the bill of lading terms. So MSC had given delivery.

The Court’s findings

- Essentially, “delivery order” in the bill of lading terms had the same meaning as “ship’s delivery order” in COGSA 1992, that is, in substitution for a bill of lading, a “delivery order” would contain an undertaking by the carrier to deliver the goods to the person identified in it” (Fn.1)

- As a “buyer should as far as possible obtain control over the goods by means of the document against which he parts with his money”, the delivery order should confer upon the buyer a right against the party in possession of the goods.

- The provision of a Release Note instructing release of the Cargo against pin codes, which were provided to Glencore’s agents, was not the same as a delivery order.

3. The Release Note with the pin codes included within it comprised a “ship’s delivery order” within COGSA 1992. It identified the Cargo and the party to whom delivery be made. So MSC had given delivery.

MSC further argued that a carrier is entitled and bound to deliver to the first presenter of a bill of lading – and similarly MSC should be entitled to deliver to the first person who entered the correct pin codes.

The Court’s findings:

- The potential interpretations of the Release Note did not assist MSC.

o First, on its face, the wording of the Release Note notified MSC’s agents of the code for delivery. It was not clear if that created any undertaking to deliver.

o Second, even taking MSC’s case, if the Release Note was an undertaking to deliver to the first presenter of the correct codes, that would not be a “delivery order” since it was not an undertaking to deliver to Glencore (or its agents).

o Third, even if the Release Note contained an undertaking to deliver the Cargo to Glencore, that undertaking had been breached.

- As regards the pin codes, no “custom of merchants” applied to pin codes as to bills of lading.

- Endorsees of the bills of lading might not accept that goods be delivered to the first person to key in the pin code.

- Glencore was unaware of the ERS.

4. Because of the previous 69 shipments, Glencore was estopped from complaining that delivery against a pin code was a breach by MSC.

The Court’s findings:

- Glencore was unaware of the ERS (and so could not have represented that delivery against pin codes was acceptable).

- Glencore’s local agent had authority to make arrangements to ensure delivery, but did not have authority to represent for Glencore that delivery against pin codes was acceptable even if, in fact, delivery was not given to Glencore or its agents.

5. MSC later allegedly found indications that Glencore’s agent had been hacked, namely that Glencore’s agent had received 3 rogue emails in the two weeks before attempting to take delivery of the Cargo. MSC alleged this evidence had been suppressed, and that if Glencore’s agent had reacted appropriately to the rogue emails, measures would have
been implemented to avoid the incident. MSC sought remission for trial on causation.

The Court’s findings:

- This allegation had not been pleaded and it was too late to raise the issue, especially where it was clear that the thieves might have obtained the pin codes by hacking. Witnesses were not questioned on the issue, and MSC had not sought the appropriate disclosure at the relevant time.

- While accepting that egregious action or inaction by Glencore’s agents might in theory have broken the chain of causation, the evidence described by MSC did not indicate that.

Two other points arose in the course of the judgment:

- The provision “Discharge of the cargo will constitute due delivery of the cargo…” does not protect a carrier from a misdelivery claim: Sze Hai Tang Bank v Rambler Cycle. [at paragraph 53]

- A Release Note sent by email could constitute a delivery order, the focus being whether it contained an undertaking to deliver to a particular party, and not on whether it was in email or in some other written form. [at paragraph 61]

Comment

The implementation of ERS and similar systems is, from an efficiency standpoint, a positive and probably inevitable development. Carriers may wish to ensure, via contractual provision, that (a) their bill of lading terms are sufficiently wide to cover their release of cargo under ERS and/or (b) the ERS arrangements are secure.

(After the incident in MSC v Glencore, MSC and its local agent implemented additional measures, namely, that containers would only be released to a driver from a specific transport company who provided identification and drove a vehicle with a specific licence number, and who supplied the correct pin code.)

Fn.1 Section 1(4) of the Carriage of Goods by Sea Act 1992 provides:

“References in this Act to a ship’s delivery order are references to any document which
is neither a bill of lading nor a sea waybill but contains an undertaking which:

(a) is given under or for the purpose of a contract for the carriage by sea of the goods to which the document relates….; and

(b) is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.”